Of all the questions that have been asked in the wake of Hurricane Sandy, I bet you have not asked yourself, “But how has this affected the banks?” I’m not talking about the big investment firms that had two unexpected days without trading. Rather I am thinking about retail branches and ATMs. Money doesn’t go on trees and it turns out to be hard to get without reliable electricity. At the same time, merchants have a limited ability to take credit cards if the power is out or phone lines are balky. Thus, while New York City hasn’t been reduced to a barter economy, the Wall Street Journal reports that it is more dependent on cash than usual (Scramble for Cash In Sandy’s Wake, Nov 2)
Bank of America Corp., Wells Fargo and J.P. Morgan Chase deployed temporary ATMs to parts of New York and New Jersey as they worked to get branches reopened, though in some cases they were delayed by signal problems and other storm-related woes.
In some areas, it was hard for banks to keep up, as people seemed to be withdrawing more cash than usual.
A Chase ATM housed in a Duane Reade pharmacy in Brooklyn, N.Y., ran out of cash at 11:30 p.m. Wednesday, according to store manager Elizabeth Almonte, who described the lines for the machine since the storm as “insane.”
On a typical day, she said, there are generally about four people waiting in line for the ATM. Sunday, she said, lines snaked across the pharmacy and out the doors. She said Chase had said it would put more money in the ATM on Monday but by midday Thursday she hadn’t heard from the bank. Customers “understood but were annoyed,” she said.
This is an interesting operational challenge. Getting anything delivered in New York right now is a hassle but the logistics of cash is particularly tricky. Movement of moolah requires special trucks and all sorts of bookkeeping at either end. Given that, there is a question of what is the best way to deploy limited resources.
One answer would be to give up on the single ATM at the Duane Reade. Chase should favor its own branches where there are presumably multiple ATMs over any location that has just one machine. Prioritizing locations with many machines is efficient since multiple ATMs can be refilled with one stop. It also allows for some amount of risk pooling. There is an interesting question on just how much cash people need right now. On the one hand, many merchants are reduced to taking only cash. On the other, general spending is curtailed because so many businesses are disrupted. Given that uncertainty, relying on a few points of sale (or cash fulfillment in this case) helps mitigate swings in demand. Further, assuming that the branch was in an operable condition, machines could be replenished by branch staff during the day.
The implicit assumption above is that there is a Chase branch reasonably close to the Duane Reade. In Manhattan that is probably a safe bet. In an outer borough, maybe not. Of course, if you don’t have a branch in the neighborhood, you may not have that many customers so ignoring that ATM may not be too problematic.
There is, of course, another way to improve service here: Pool ATMs across banks. Airlines ahead of the storm waived flight change fees to accommodate customers. Banks could similarly waive their coercive fees for using out of network ATMs. If Chase, B of A, and Wells Fargo all agreed not to charge each others customers when using branch ATMs, they could pool demand very effectively and presumably provide decent service for a neighborhood from whichever bank had a local bank.
A final point. For as much as people like to talk about the death of cash and the rise of mobile payment systems, it has to be recognized that the dollar bill is a robust technology. As long as there is some chance that networking technologies fail, there will always be a role for cash in the economy.